Why Speedway helps make Michigan the 3rd most volatile for gas prices in nation

AP File PhotoMichigan has the third most volatile gas prices in the nation, according to a study by GasBuddy.com of daily statewide average prices since January 2011.

In Michigan, motorists have become accustomed to gas prices that change by the day, or even hour.

But that’s not so common outside the Midwest.

Michigan has the third most volatile gas prices in the nation, according to a study by GasBuddy.com of daily statewide average prices since January 2011.

The state saw an average daily change in gas prices of 2.4 cents per gallon between Jan. 1, 2011 and July 17, 2012. The only states with higher fluctuations were Ohio at 2.6 cents and Indiana at 2.8 cents.

“Due to the Great Lakes and their bizarre price spikes, I expected these states to lead the nation, and they did,” senior petroleum analyst Patrick DeHaan wrote in his GasBuddy.com blog on Thursday.

Gas stations in Michigan and other Midwest states are part of a phenomenon called “price cycling,” where gas goes through a sharp price increase followed by more gradual price decreases, according to a 2010 report from the Federal Trade Commission’s Bureau of Economics.

The report, which studied gas pricing in 350 cities nationwide from 1996-2007, found that recent price cycles began in 2000 and generally occur in Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, and Ohio.

“I think a lot of it has to do with behavior exhibited from leading competition,” DeHaan told MLive. “A company that has a high concentration of stations effectively controls that market especially when the entity changes prices at all stations at one time.”

Speedway has a history of leading price increases in the Midwest, up to 20 to 40 cents in one day, he said. Unlike other gas stations that are franchised and run by individual owners, all Speedway stations are corporately owned and controlled.

The Enon, Ohio-based company is a wholly owned independent subsidiary of Marathon Petroleum Corp. It’s the fourth-largest chain of company-owned and operated stations with 1,350 locations, including about 300 in Michigan.

“While everything sounds bad and while a lot of people may hate Speedway …. this pricing strategy of quickly seeing prices spike also results in a faster downturn in prices,” DeHaan said. “That behavior can save consumers.”

The FTC study found that consumers in cities where price cycling occurs save about one cent per gallon on average.

Speedway spokesman Shane Pochard would not discuss the company’s pricing procedures, but said that a number of factors go into prices, including the cost of crude oil, transportation, competition, supply and demand.

“There are a number of factors that Speedway uses to come up with the most competitive price that they’re able to,” he said.

Generally, the market reacts much more quickly to the price of crude oil, said Nancy Cain, spokeswoman for Dearborn-based auto club AAA Michigan.

“In the old days, years ago, gas prices would only change literally once or twice a week. Now prices can change several times a day,” she said.

That makes it difficult for motorists to budget for road trips, she said.

But that doesn’t seem to stop them from traveling. If they have to pay more for gas, they’ll spend less on other things, she said.

Volatility is not as bad on the wholesale market, so large companies and government entities that use a lot of fuel generally aren’t subject to the huge price swings that can occur on the retail market, DeHaan said.